Question

Champion Contractors completed the following transactions involving equipment.

Year 1

Jan.		1		Paid $282,000 cash plus $11,280 in sales tax and $1,800 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $28,200 salvage value. Loader costs are recorded in the Equipment account.
Jan.		3		Paid $7,000 to install air conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $2,100.
Dec.		31		Recorded annual straight-line depreciation on the loader.

Year 2

Jan.		1		Paid $4,600 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb.		17		Paid $1,150 for minor repairs to the loader after the operator backed it into a tree.
Dec.		31		Recorded annual straight-line depreciation on the loader.

Required:
Prepare journal entries to record these transactions and events.

Answer 1

Answer
Journal Entry
Date	Account titles and explanation	Debit	Credit
Year 1
Jan-01	Equipment	$ 2,95,080
	To, Cash (282,000+11280+1800)		$ 2,95,080
Jan-03	Equipment	$       7,000
	Cash		$       7,000
Dec-31	Depreciation expense—Equipment	$     65,745
	Accumulated depreciation (282,000+11280-28200-2100)/4		$     65,745
Year 2
Jan-01	Equipment	$       4,600
	Cash		$       4,600
Feb-17	Repairs expense—Equipment	$       1,150
	Cash		$       1,150
Dec-31	Depreciation expense—Equipment	$     40,367
	Accumulated depreciation (282,000+11280+4600-28200-2100-65745)/5		$     40,367